Question 1

When conducting a financial analysis of a firm, financial analysts:
A)cannot use accounting information as it is historical.
B)rely solely on accounting information.
C)frequently use accounting information.
D)ignore accounting information but do use marketing information.
E)assume the future will be a repeat of the past as reflected in the firm's accounting reports.

Accepted Answer

Financial analysts frequently use accounting information as it provides a historical basis for understanding the firm's financial position and performance, which is essential for making informed predictions and decisions.

Question 2

Which one of the following is a capital structure decision?
A)Determining the optimal inventory level
B)Establishing the preferred debt-equity level
C)Selecting new equipment to purchase
D)Setting the terms of sale for credit sales
E)Determining when suppliers should be paid

Accepted Answer

Capital structure decisions involve determining the mix of debt and equity financing, which is what establishing the preferred debt-equity level entails.

Question 3

Working capital management includes which one of the following?
A)Deciding which new projects to accept
B)Deciding whether to purchase a new machine or fix a currently owned machine
C)Determining which customers will be granted credit
D)Determining how many new shares of stock should be issued
E)Establishing the target debt-equity ratio

Accepted Answer

Working capital management involves managing the short-term assets and liabilities of a company, including decisions related to credit policies for customers.

Question 4

An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:
A)residual owners.
B)shareholders.
C)financiers.
D)provisional partners.
E)stakeholders.

Accepted Answer

Employees are considered stakeholders as they have an interest in the company's performance and cash flows, but they are not residual owners or shareholders.

Question 5

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts are referred to as:
A)capital structure decisions.
B)capital budgeting decisions.
C)working capital management.
D)operating management.
E)fixed account structure.

Accepted Answer

Working capital management involves managing the short-term assets and liabilities of a company, such as current assets and current liabilities, to ensure the company can continue its operations and meet its short-term obligations.

Question 6

Uptown Markets is financed with 45 percent debt and 55 percent equity.This mixture of debt and equity is referred to as the firm's:
A)capital structure.
B)capital budget.
C)asset allocation.
D)working capital.
E)risk structure.

Accepted Answer

The capital structure of a firm refers to the mixture of debt and equity financing that the firm uses.

Question 7

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis.Which type of entity did they create if they have no personal liability for the firm's debts?
A)Limited partnership
B)Corporation
C)Sole proprietorship
D)General partnership
E)Public company

Accepted Answer

A corporation is a separate legal entity where owners (shareholders) have limited liability for the firm's debts.

Question 8

Which one of the following correctly defines a common chain of command within a corporation?
A)The controller reports directly to the corporate treasurer.
B)The treasurer reports directly to the board of directors.
C)The chief financial officer reports directly to the board of directors.
D)The credit manager reports directly to the controller.
E)The controller reports directly to the chief financial officer.

Accepted Answer

The controller typically reports directly to the chief financial officer (CFO) in a corporation, as the CFO oversees financial operations, including accounting and financial reporting.

Question 9

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?
A)Data processing
B)Cost accounting
C)Tax management
D)Cash management
E)Financial accounting

Accepted Answer

The corporate treasurer is typically responsible for managing the company's cash, including cash management, whereas the controller handles accounting-related functions.

Question 10

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?
A)Organizational
B)Structural
C)Formative
D)Agency
E)Territorial

Accepted Answer

The conflict of interest between a firm's owners and its managers is known as an agency conflict, which arises when managers (agents) may not act in the best interests of the owners (principals).

Question 11

Margie opened a used bookstore and is both the 100 percent owner and the store's manager.Which type of business entity does Margie own if she is personally liable for all the store's debts?
A)Sole proprietorship
B)Limited partnership
C)Corporation
D)Joint stock company
E)General partnership

Accepted Answer

Margie owns a sole proprietorship, where she is personally liable for all the business's debts, as she is the sole owner and manager.

Question 12

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?
A)Cost accounting
B)Data processing
C)Corporate taxes
D)Financial accounting
E)Capital expenditures

Accepted Answer

The corporate treasurer is typically responsible for managing the company's capital expenditures, which involves planning and overseeing investments in long-term assets.

Question 13

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods.However, Weil's board of directors rejects the acquisition offer.This is an example of:
A)a corporate takeover.
B)a capital structure issue.
C)a working capital decision.
D)an agency conflict.
E)a compensation issue.

Accepted Answer

This situation exemplifies an agency conflict, where the interests of the board of directors (agents) do not align with those of the shareholders (principals), who would benefit from the acquisition.

Question 14

Jamie is employed as a currency trader in the Japanese yen market.Her job falls into which one of the following areas of finance?
A)International finance
B)Financial institutions
C)Corporate finance
D)Capital management
E)Personal finance

Accepted Answer

Jamie's job involves trading in the currency market, which is a key aspect of international finance.

Question 15

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?
A)International finance
B)Private placements
C)Corporate finance
D)Capital management
E)Investments

Accepted Answer

As a domestic security analyst for a brokerage firm, you would be analyzing securities, which are investment instruments, making "Investments" the most relevant financial area.

Question 16

Will and Bill both enjoy sunshine, water, and surfboards.Thus, the two friends decided to create a business together renting surfboards, paddle boats, and inflatable devices in California.Will and Bill will equally share in the decision making and in the business profits or losses.Which type of business did they create if they both have full personal liability for the firm's debts?
A)Sole proprietorship
B)Limited partnership
C)Corporation
D)Joint stock company
E)General partnership

Accepted Answer

A general partnership involves two or more individuals who share in the management, profits, and liabilities of a business. In this case, Will and Bill equally share decision-making and profits or losses, and they both have full personal liability for the firm's debts, which is characteristic of a general partnership.

Question 17

Which one of the following is a working capital decision?
A)How should the firm raise additional capital to fund its expansion?
B)What debt-equity ratio is best suited to the firm?
C)What is the cost of debt financing?
D)Should the firm borrow money for five or for ten years?
E)How much cash should the firm keep in reserve?

Accepted Answer

Working capital decisions involve managing the short-term assets and liabilities of a firm, such as cash reserves, to ensure it can meet its short-term obligations.

Question 18

Capital budgeting includes the evaluation of which of the following?
A)Size of future cash flows only
B)Size and timing of future cash flows only
C)Timing and risk of future cash flows only
D)Risk and size of future cash flows only
E)Size, timing, and risk of future cash flows

Accepted Answer

Capital budgeting involves evaluating the size, timing, and risk of future cash flows to make informed investment decisions.

Question 19

Jenna has been promoted and is now in charge of all external financing.In other words, she is in charge of:
A)capital structure management.
B)asset allocation.
C)risk management.
D)capital budgeting.
E)working capital management.

Accepted Answer

Jenna's role in managing external financing relates to capital structure management, which involves decisions about the mix of debt and equity financing.

Question 20

Which one of the following occupations best fits into the corporate area of finance?
A)Mortgage broker
B)Treasury bill analyst
C)Chief financial officer
D)Insurance risk manager
E)Local bank manager

Accepted Answer

The Chief Financial Officer (CFO) is a key executive role within a corporation, responsible for managing the company's financial actions, making it the best fit for the corporate area of finance.

Quiz 1: Introduction to Financial Management

When conducting a financial analysis of a firm, financial analysts:

Which one of the following is a capital structure decision?

Working capital management includes which one of the following?

An employee has a claim on the cash flows of Martin's Machines.This claim is defined as a claim by one of the firm's:

Theo's BBQ has $48,000 in current assets and $39,000 in current liabilities.Decisions related to these accounts are referred to as:

Uptown Markets is financed with 45 percent debt and 55 percent equity.This mixture of debt and equity is referred to as the firm's:

Matt and Alicia created a firm that is a separate legal entity and will share ownership of that firm on a 75/25 basis.Which type of entity did they create if they have no personal liability for the firm's debts?

Which one of the following correctly defines a common chain of command within a corporation?

Which one of the following functions should be assigned to the corporate treasurer rather than to the controller?

The potential conflict of interest between a firm's owners and its managers is referred to as which type of conflict?

Margie opened a used bookstore and is both the 100 percent owner and the store's manager.Which type of business entity does Margie own if she is personally liable for all the store's debts?

Which one of the following functions is generally a responsibility assigned to the corporate treasurer?

The shareholders of Weil's Markets would benefit if the firm were to be acquired by Better Foods.However, Weil's board of directors rejects the acquisition offer.This is an example of:

Jamie is employed as a currency trader in the Japanese yen market.Her job falls into which one of the following areas of finance?

If you accept a job as a domestic security analyst for a brokerage firm, you are most likely working in which one of the following financial areas?

Which one of the following is a working capital decision?

Capital budgeting includes the evaluation of which of the following?

Jenna has been promoted and is now in charge of all external financing.In other words, she is in charge of:

Which one of the following occupations best fits into the corporate area of finance?